Ross Harris: Alternative Sources of Finance (26.11.12)
Alternative sources of finance November 2012
AgendaAlternative sources of finance• Introduction• Alternative lenders• Business angels• Peer to peer lending / Crowd funding• Soft loans• Grants• Working capital improvements• Other ideas
Introduction• Since the credit crunch of 2008 finance has been more difficult to obtain• The availability of credit has been restricted through Banks being more risk averse as well as new regulations• Growth in demand for finance is expected to create a funding gap of between £84bn and £191bn.
Introduction“Only 23% of those responsible for makingfinance decisions in SMEs have a financialqualification; only 23% of SMEs are awareof the Enterprise Finance Guarantee andonly 17% of SMEs were aware of theMerlin agreement despite widespreadpress coverage.”Source: BIS - “Boosting Finance Options for Business” March 2012
Alternative lendersAn alternative to borrowing from high streetbanks.Key features• Flexible approach to lending• Quick decision making• Fixed interest rates• Straightforward term loan agreements• Work closely with management
Business angelsExperienced business professionals orentrepreneurs looking to invest inbusinesses with high growth potential.Key features• Invest in return for equity• Often take an active role in management• Seek high returns on their investments• Quick investment decisions
Peer to peer lendingIndividuals lend directly to Companiesthrough online lending platforms.Key features• Lenders set their own interest rates based on the risk rating allocated• The borrower’s rate is subject to a reverse auction• Not covered under the FSCS• Not suitable for start up companies
Soft loansSome government and charitable bodieswill lend to businesses on favourableterms.Examples• PSYBT – supporting young people in business with loans of up to £25k• East / West of Scotland Loan Fund – loans of up to £50k
GrantsMostly issued by Government agencies fora specific purpose or project and unlikeloans they do not need to be paid back.Examples• RSA – up to 35% support for investment that will result in the creation of jobs• Smart : Scotland – discretionary grants of up to £600k to support feasibility studies, and research and development (R&D) projects
Working capital improvementsAvoid the need for third party funding throughmore efficient management of internal cash.Things to consider• Supplier credit terms – can you agree more generous credit terms?• Credit control – are your customers paying within agreed credit terms?• Stock management – are you carrying excess stock?
Other ideas• SIB Scottish Loan Fund – mezzanine loans from £250k to £5m• Credit cards• Merchant cash advance• Family loans• Personal savings
Summary• There are more alternative sources of finance than you may think.• Some may still be difficult to access.• Some will more expensive than traditional bank finance.• Maintaining good financial records and a robust, sensible business plan is key to unlocking finance from traditional or new sources of finance.